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Abstract
[...]there are no wire transaction fees, credit reports, collateral requirements, or escrow commissions involved in the transaction (other than minor "miner" transaction fees incurred). [...]the IRS, like other crypto-law enforcers, will have to quickly adapt to the changing technology to stave off that technology overrunning Main Street and Wall Street. "41 Simply calling cryptocurrency a "currency" or a "utility token" does not make it a security since the economic realities and substance of transaction, not its form, will control.42 Under this test, Jay Clayton, the current SEC chair, has publicly stated in numerous settings that all the cryptocurrency offerings he has seen are securities, none of which have been registered and all of which have been traded on unlicensed and unapproved trading platforms. Since July 2017, warnings by the SEC and Chair Clayton to the public have included: * In July 2017, the SEC issued investor bulletin warnings about ICOs43 and a Report of Investigation under Section 21(a) of the Securities Exchange Act of 1934 describing an SEC investigation of a decentralized autonomous organization (DAO) and its use of distributed ledger or blockchain technology to sell DAO Tokens, a virtual currency, to raise capital; the SEC determined that DAO Tokens were securities and those who sold them had to comply with federal securities laws;44 * In September 2017, the SEC created a new Cyber Unit to focus, among other things, on violations involving distributed ledger technology and ICOs;45 * In November 2017, Chair Clayton, speaking at an Institute on Securities Regulation conference said, "I have yet to see an ICO that doesn't have a sufficient number of hallmarks of a security...There is also a distinct lack of information about many online platforms that list and trade virtual coins or tokens offered and sold in ICOs;"46 * In December 2017, Chair Clayton in an official SEC "Statement on Cryptocurrencies and Initial Coin Offerings" warned Main Street investors: "By and large, the structures of [ICOs] that I have seen promoted involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws;"47 * In January 2018, Chair Clayton at the Securities Regulation Institute relayed a "simple" and "stern" message to securities lawyers not to help clients structure cryptocurrency offerings with many key features of securities offerings but advise the clients that these products were not securities; he said the SEC staff would be on "high alert" for advice that ran contrary to the "spirit of our securities laws and the professional obligations of the U.S. securities bar;"48 * In February 2018, Chair Clayton testified before the Senate Banking, Housing and Urban Affairs Committee, opining: "I believe every ICO I have ever seen is a security.... The disadvantages of this "complete ban" strategy, however, are those repeatedly voiced by all government regulators themselves. Since this financial technology has the potential, if properly regulated, to revolutionize financial markets and bring increased transparency, efficiency and access not only to Wall Street but also to Main Street investors and consumers, completely banning virtual currencies will stunt innovation and divert these currencies onto unregulated, unlicensed platforms and facilitate illicit uses.